If the government implements the decision to ban imports of Chinese equipment out of fear of security breaches, the Indian telecom industry is in big trouble.

Certainly, such a ban will deliver a deathblow to the CDMA mobile industry -- this is what Tata Teleservices has to say about the negative list of Chinese equipment makers that the government has drawn up. The Tata company is a big importer and user of Chinese telecom gear.

At the same time, Tata Teleservices, in a conversation with Financial Chronicle on Thursday, said that a breakthrough was likely soon to end what the company called the impasse over equipment imports from China.

UTStarcom, a big, Nasdaq-listed telecom equipment supplier founded by a Chinese-American, saw difficulties in imports into India but pinned hopes on an early breakthrough. Two other big Chinese equipment makers, ZTE and Huawei Technologies, did not respond to queries on the report in Thursday’s Financial Chronicle on the move to ban imports from 26 companies, 25 of them Chinese and one Israeli. UTStarcom is on the banned list.

In the wake of the report, the Chinese ambassador in New Delhi, Zhang Yan, is believed to have requested a meeting with home secretary G K Pillai to discuss the Indian move. But this newspaper could not independently verify the Chinese request.

Tata Teleservices’ managing director, Anil Kumar Sardana, told FC: “If there is a ban, the industry, especially the CDMA industry, will be dealt a death knell.”

He said Tata Teleservices would also be hit, given that half its network was ‘fired’ by Chinese equipment. But, he said, there were others who would be hit harder. These would include the state-owned telecom companies.

He said the big worry was not just 3G but also 2G, since “we are operating under stress servicing a growing pan-India clientele.”

Sardana, however, said he did not know of any ban. “There is a clear progress on the issue, given the attention it has received from the highest echelons in the government. But, yes, there are still some wings of the government that have apprehensions.”

Sardana said they had met the home secretary and telecom secretary last week to resolve the issue. “We were promised that the issue would be sorted out at the earliest with the government issuing fresh guidelines.”

His personal view was that the government had shown the resolve and said, “We hope to end the issue amicably.” “We have agreed on third-party validation, self-certification, bank guarantee and relevant paper work.”

Sardana said no import of Chinese gear had taken place since December.

Tata Teleservices had on June 29 written to the telecom secretary arguing for a level playing field in issuing security clearance to ensure that there was no commercial disadvantage to those using Chinese equipment. Bharti and Vodafone are two big operators that primarily use non-Chinese equipment.

Reliance Communications, BSNL, MTNL, and MTS, among the new players, all essentially use Chinese equipment. Reliance and MTS did not comment on the government move.

UTStarcom’s South Asia managing director, Vijay Yadav, said, “We continue to supply equipment to various companies. If there is a concern, we work with the government through the vendor. Yes, the situation is not the same as that six months or a year ago. But it does not mean we do not have either orders or we have not supplied equipment in the past few months. If there are certain additional compliances required, we will comply.”

Yadav said there was no ban either officially or legally “as of now”. “We do understand that there are certain preventive measures to ensure there is no potential security concern. Accordingly, there are certain guidelines already in place, which involve a free flow of exchange between companies. As of now, we have no information on any fresh concern or ban,” he added.

The question of a ban was at the moment hypothetical, he said. “But yes, it is a matter of fact that one has to comply with whatever regulations there are in any country. We are always ready for that.”

UTStarcom has a fully-owned subsidiary in India and a factory in China as well.

The chairman & managing director of ZTE India, D K Ghosh, told this paper: “I do not want to discuss anything right now as we are still waiting for the information. We will speak at length in a week or more.”

Rajeev Yao, spokesman for Huawei, declined comment.

According to a home ministry official, no time had been fixed for the Chinese ambassador meeting with the home secretary.

Meanwhile, it is learnt that security agencies have sought strict enforcement of the ban. Even if a single product of a vendor is found with malware or a trap door, the entire range of products from such suppliers will be blacklisted, a senior official told this newspaper.

He said, however, that where third-party certification, self-certification by vendors and undertaking by services providers were given, requests for imports had not been stopped. But on 328 proposals for imports, Indian telecom companies had not yet provided such undertakings.

One possible fallout of such ban may be that European equipment suppliers will raise prices for their gear imported by Indian companies. There is also a possibility that the banned foreign vendors will find ways to push their hardware and software into Indian markets.

B Jagadish, India sales head of OneAccess Europe, a telecom vendor, in a letter to this newspaper, raised some pertinent questions.

One, how will Indian Customs trace Chinese equipment imported through third parties based, say, in Singapore, Hong Kong or China?

Two, how will the government treat imports by independent traders from companies on the banned list, like Shanghai Baud, Ruijie Networks, whose equipment are also used by providers of internet services, including telephony?

Three, can equipment from some of the companies on the list still be used for e-governance, since such gear is mainly used by systems integrators?

rakeshkhar@mydigitalfc.com